Question

Utilizing the fictitious company Tag-It Corporation, prepare next year's forecast with a pro forma income statement. Here is the current income statement for Tag-It:

Download the income statement.
Additionally, Tag-It's CEO has predicted a 12% increase in total revenue next year. Utilizing the percentage of sales method, prepare a forecast for next year in the correct section on the Excel spreadsheet.
The total revenue numbers over the past 4 years for Tag-It Corporation were as follows (values in millions):
a 73,785
b 69,495
c 75,356
d 71,879

Answer 1

To forecast Tag-It Corporation's sales, apply a 12% increase in total revenue to each line item in the pro forma income statement. Predicted sales on day 60 and day 90 are calculated using the given regression model. Therefore, the correct option is C.

Step-by-step explanation:

To forecast next year's sales using a pro forma income statement for Tag-It Corporation and the percentage of sales method, one starts with the provided prediction of a 12% increase in total revenue. Assuming the current income statement is available with a proper Excel spreadsheet setup, each line item on the income statement is typically expressed as a percentage of current total sales. The 12% increase in total revenue is applied to these percentages to forecast the expected amounts for the next year. Applying the given linear regression model for sales growth predictions, for day 60, the sales prediction would be: ŷ = 101.32 + 2.48(60). For day 90, the prediction would be: ŷ = 101.32 + 2.48(90). These results give us the predicted sales in thousands of dollars for each respective day.